Hyundai Motor Co., South Korea's biggest automaker, reported a steeper profit drop than analysts estimated after the won appreciated more than any major currency, reducing the value of overseas sales. The stock fell.
Fourth-quarter net income declined 5.5 percent to 1.89 trillion won ($1.8 billion), compared with 2 trillion won a year earlier, the Seoul-based company said today in a statement. Analysts expected 1.98 trillion won, according to the average estimate of seven analysts surveyed by Bloomberg. Revenue also missed estimates.
Hyundai shares fell the most in three weeks as the results showed how Hyundai Motor -- and more broadly, South Korean exporters -- are bracing for the end of a four-year period of favorable exchange rates. The yen, which began tumbling since late 2012 to the benefit of Toyota Motor Corp., will probably extend its slide and the won will keep appreciating this year, according to forecasts compiled by Bloomberg.
"The won will most likely continue strengthening this year, and if this trend continues, it will have a notable impact on the company," said Heo Pil Seok, chief executive officer of Seoul-based Midas International Asset Management Ltd., which oversees about $5.5 billion, "The company needs to show significant sales growth for the shares to move favorably, but that seems difficult this year."
Hyundai slumped 4.6 percent, the steepest drop since Jan. 3, to close at 208,000 won in Seoul. Smaller affiliate Kia Motors Corp., which reports earnings tomorrow, tumbled 3.5 percent to a two-year low and underperformed the Kospi stock index's 0.8 percent decline.
Yen vs. Won
The yen will probably end 2013 at 90 per dollar, according to the median estimate in a Bloomberg survey of analysts, which would be the weakest finish to a year since 2009. The won is projected to gain more than 3 percent to 1,030 per dollar, the sharpest gain among Asian counterparts, the surveys show.
"The magnitude of the won's appreciation will probably intensify toward the second half of this year," Chief Financial Officer Lee Won Hee said today during a conference call. "The weak yen will allow Japanese automakers to aggressively market products, especially in places where we are intensely competing against them, such as Australia and Russia."
Such a trend wouldn't help Hyundai Motor, which has forecast that deliveries will rise 5.7 percent to 4.66 million vehicles this year, the slowest growth since 2007. Combined sales at the carmaker and smaller affiliate Kia Motors Corp. will probably increase 4.1 percent to 7.41 million units, the lowest growth in seven years, according to the companies.
"2013 will be a very difficult year as the ongoing European crisis and the slowing global economy affect international and domestic markets," Chung Mong Koo, chairman of both Hyundai and Kia, said during a new year address on Jan. 2.
Chung, 74, can thank the combination of a weaker won and a stronger yen for some of his success in the past five years. In that period, Hyundai Motor Group gained more market share than any other major automaker -- even outselling Toyota, Asia's largest manufacturer by revenue, in China and India.
From the middle of 2007 to late 2008, when the value of the yen more than doubled against the won, Japanese carmakers were under pressure to raise prices while Hyundai could theoretically ship a car to the U.S. and cut the price by 40 percent without eroding profitability. The yen kept appreciating, reaching a postwar high of 75.35 against the dollar at the end of October 2011 and traded below 80 as recently as last November.
Then Yoshihiko Noda, Japan's prime minister at the time, in mid-November called for new elections and fueled speculation that a new government would step up efforts to weaken the yen. No currency in the world has weakened more than the yen since.
"Our competitive edge against Hyundai is much better than a year ago," Mitsuhisa Kato, executive vice president at Toyota, said Jan. 7.
The won's appreciation will undermine South Korean automakers' profitability and may lead to budget cuts in marketing or research and development investments, Bank of America Corp. Merrill Lynch wrote in a report on Jan. 22. The profitability gap with Japanese automakers will likely shrink and South Korean makers, with capacity shortages and a dearth of new products, will probably face a lull in volume growth, according to the report.
Fourth-quarter sales rose 11 percent to 22.72 trillion won, below the average analyst estimate, though Hyundai ended the year with record annual revenue. Operating income, or sales minus the cost of goods sold and administrative expenses, also missed the average estimate.
Aside from the fading currency advantage, Hyundai's line-up of new products may slow this year. The company's only global full-model change among its vehicles may be the Genesis in the second half of this year, analysts at NH Investment & Securities Co. and KB Investment & Securities Co. said. By comparison, Hyundai last year released the new Brazil-specific HB20 and a new Santa Fe sport utility vehicle, a model that's seven times more popular, in terms of unit sales, than the Genesis.
Hyundai declined to comment on new models this year.
Hyundai said today it's setting aside 240 billion won as provisions to reimburse customers after announcing in November that the company and Kia overstated the fuel efficiency of some models in the U.S. The Seoul-based automakers have offered customers of 900,000 vehicles prepaid fuel cards to compensate them for the differences in fuel economy compared with what appeared on the cars' window stickers.
Hyundai's sales in the country climbed 8.9 percent to a record 703,007 vehicles in 2012, though the growth was lower than the average industrywide 13 percent jump in vehicle sales, according to data compiled by Bloomberg. The automaker forecast U.S. sales will rise 4.3 percent to 734,000 units.
Helping Hyundai ease the fallout from the currency and the fuel-economy scandal was China. The company sold 38 percent more vehicles in the country last quarter and capped the year with a 16 percent increase in deliveries, according to Hyundai and Kia. This year, Hyundai said it expects sales to rise 13 percent to 970,000 units in China and raise its market share.
Passenger-vehicle demand in China will expand by 8.5 percent to 16.8 million units this year, according to the China Association of Automobile Manufacturers. That's faster than last year's 7.1 percent as analyst expectations mount about economic stimulus measures by the new government.
In Europe, Hyundai's sales rose 4.9 percent last quarter and 10 percent during 2012, fueled by sales of its i30 compacts and Tucson sport utility vehicles. Sales will drop 6.5 percent to 415,000 units this year, the CFO said.
For the year, Hyundai's net income rose 12 percent to a record 9.06 trillion won and its operating profit rose 5.1 percent, both records.
--Editors: Young-Sam Cho, Chua Kong Ho
To contact the reporter on this story: Rose Kim in Seoul at rkim76bloomberg.net
To contact the editor responsible for this story: Young-Sam Cho at ycho2bloomberg.net